Saturday 23 March 2019

Fresh call for tech tax-break revamp as VC falls €250m

Cash support: Irish Venture Capital Association director-general Sarah-Jane Larkin says VC backing is the main source of funding for ‘innovative’ Irish SMEs. Photo Chris Bellew/ Fennell Photography
Cash support: Irish Venture Capital Association director-general Sarah-Jane Larkin says VC backing is the main source of funding for ‘innovative’ Irish SMEs. Photo Chris Bellew/ Fennell Photography
Funding gap: With several big deals stripped out, the year-on-year decline was 40pc, according to IVCA chairman Alex Hobbs. Stock image
Adrian Weckler

Adrian Weckler

Venture capital for tech companies fell by more than €250m last year as industry experts warn of structural factors preventing access to cash for startups.

Despite two huge individual funding rounds of €100m, the overall venture capital outlay was down a quarter on the same period in 2017.

And excluding 'megadeals' of €100m or more, the funding levels are down by almost half on 2017, with the last three months of 2018 seeing an accelerated decline of 35pc on the same period a year before.

In all, the tech and biotech industry attracted €739m in funding from venture investors in 2018, down from almost €1bn in 2017, according to figures released by the Irish Venture Capital Association in association with William Fry.

"If you strip out the two investments in 2018 and the one in 2017 of more than €100m then the decline year-on-year was 40pc," said Alex Hobbs, chairman of the IVCA.

Irish venture capital firms have recently complained about rules that limit their ability to raise money from institutional funds. A number of investors and business owners have also begun lobbying for greater tax breaks aimed at tech entrepreneurs and their staff in Ireland, claiming that lower UK tax rates now make it less attractive to start a business in Ireland.

"I know that this [Irish startups using the UK as a financial base] has happened already," said Brian Caulfield, a venture partner with Draper Esprit and one of Ireland's most experienced venture capitalists.

The average deal size in 2018 fell from €3.5m to €3.2m driven by a decline in larger investments of more than €10m. These were down 30pc on 2017 levels with companies in this category raising €432m in 2018 compared to €610m in 2017. Only 12 companies raised more than €10m in 2018.

Despite fourth-quarter funding down 35pc to €115m, Mr Hobbs said that there were "green shoots" on the horizon.

"Seed funding rebounded strongly in the final quarter, achieving its highest quarterly total of nearly €20m across 50 companies," he said.

"But this has not compensated for a decline overall, which is a concern at a time of international uncertainty when we should be investing in indigenous tech companies."

Two companies, Dublin-based Intercom and Limerick-based AMCS, registered funding rounds of €100m in 2018, according to the figures.

Sarah-Jane Larkin, director-general of the IVCA, said: "The Irish venture capital community continues to be the main source of funding for Irish innovative SMEs - both through direct investment and as the local lead investor for international syndicate investors who accounted for 50pc of the funding raised by Irish SMEs in 2018."

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